Country Reports
2024
June 24, 2024
Luxembourg: Financial Sector Assessment Program—Technical Note on Macroprudential Policy Framework, Tools, and Calibration
Description: Strong policy support and high financial buffers are helping the financial sector weather the consecutive shocks, but pre-pandemic vulnerabilities have continued to rise. Ultra loose financial conditions, in part as a consequence of ECB’s monetary policy, have contributed to increased households’ indebtedness and stretched asset prices. Specifically, real estate prices had grown rapidly over 2018–22 with signs of overvaluation. Households’ indebtedness continued to rise, although partly mitigated by high households’ net wealth. These mounting real estate vulnerabilities prompted measures from the authorities, including on the macroprudential front, that bolstered the resilience of the banking sector but had mixed effects on the risk profile of new mortgages. The average LTV has dropped but the impact on DSTI and DTI has been more muted.
June 24, 2024
Bangladesh: Second Reviews Under the Extended Credit Facility Arrangement and the Arrangement Under the Extended Fund Facility, and Requests for Rephasing of Access, a Waiver of Nonobservance of a Performance Criterion, and Modifications of a Performance Criterion, and Second Review Under the Resilience and Sustainability Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Bangladesh
Description: The Bangladesh economy continues to face multiple challenges. Persistently high international commodity and food prices and global uncertainties have amplified macroeconomic vulnerabilities. A sudden reversal of the financial account intensified pressures on foreign exchange reserves and the exchange rate, calling for a reinvigoration of the reform momentum.
June 24, 2024
Luxembourg: Financial Sector Assessment Program—Technical Note on Selected Issues in Banking Supervision
Description: This review1 examines specific aspects of the banking supervision regime in Luxembourg focusing on the supervision by the Commission de Surveillance du Secteur Financier (CSSF) of Less Significant Institutions (LSIs). In addition to updating the findings of the previous Technical Note of 2017, it examines the CSSF’s supervisory approach to liquidity risk, interest rate risk in the banking book (IRRBB), operational risk, and related-party exposures.
June 24, 2024
Luxembourg: Financial Sector Assessment Program—Technical Note on Insurance Regulation and Supervision
Description: The insurance sector in Luxembourg is very large and serves as a European hub, specifically in the non-life (re)insurance sector and in unit-linked life insurance. Sector assets equaled EUR 289bn in June 2023, corresponding to 372 percent of GDP, significantly higher than in other European peers, Luxembourg insurance business is conducted mainly cross-border, both in the life and the non-life sector. The sector’s international role has been strengthened further after the Brexit vote when several U.K. insurers resettled to Luxembourg to continue cross-border business in the EEA through the passporting system. Business underwritten for domestic risks represents only 6 percent of the sector’s total technical provisions. Both the life and the non-life sector have undergone some consolidation recently, and most Luxembourgish insurers are subsidiaries of foreign groups.
June 24, 2024
Switzerland: 2024 Article IV Consultation-Press Release; Staff Report; Informational Annex; and Statement by the Executive Director for Switzerland
Description: Growth is recovering gradually (projected at 1.3 percent in 2024) after slowing in 2023 (0.8 percent). A tight monetary stance and disinflation abroad have brought inflation within SNB’s 0–2 percent price stability range, and the SNB lowered its policy rate in March 2024, ahead of other major central banks. The external current account has remained in surplus but declined, while the general government surplus declined in 2023. Fiscal fundamentals are strong with low debt levels, but mounting spending pressures and remaining future financing gaps in the pension system, including stemming from the recent vote on a 13th monthly pension payment, need to be addressed. The state-facilitated acquisition of Credit Suisse (CS) by UBS stabilized markets, and the authorities have published reform proposals based on their review of the transaction and the TBTF framework. Negotiations with the EU restarted. Climate policy progressed. Medium-term challenges include labor shortages and skill gaps.
June 24, 2024
Luxembourg: Financial Sector Assessment Program—Technical Note on Stress Testing and Systemic Risk Analysis
Description: The Luxembourg financial system is highly interconnected, diverse and complex. It has displayed a high level of resilience in the past but currently faces a backdrop of heightened economic, financial, and geopolitical uncertainty. Investment funds have grown since the 2017 FSAP, while their connections to other funds, banks, nonbank financial intermediaries, and foreign entities have also increased. The domestic banks are exposed to the ongoing downturn in credit and house price cycles, especially in the high-risk mortgage segment with floating-rate loans. Securities portfolios in large banks are mostly held-to-maturity and spread across euro area issuers. Against the risks, the financial system maintains higher capital ratios than euro area peers, has low but rising nonperforming loans, and benefits from government support measures to the private sector from an AAA-rated sovereign.
June 21, 2024
Republic of Estonia: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Estonia
Description: Russia’s war on Ukraine triggered supply side disruptions, shifting up price and cost levels compared to the euro area average and hurting competitiveness. These developments added to longer-standing problems. Estonia’s export market share has stalled since soon after the GFC as productivity growth fell and the country’s previous competitive edge slowly eroded.
June 20, 2024
Bosnia and Herzegovina: 2024 Article IV Consultation-Press Release; Staff Report
Description: Growth decelerated to 1.7 percent in 2023 from 4.2 percent in 2022 but has proven resilient despite ongoing headwinds, such as spillovers from the war in Ukraine and from the economic slowdown in Europe. Inflation has moderated from 17.4 percent in October 2022 to 6 percent, on average, in 2023, but wage pressures linger due to minimum wage increases and emigration. The fiscal balance deteriorated from a surplus of 0.9 percent in 2022 to a deficit of 1.7 percent in 2023, reflecting the accumulated impact of several permanent increases in public wages and social benefits. Progress on structural reforms remains limited, although EU accession talks appear to have sparked some reform ambition.